Capital Allowances is the main form of tax relief for expenditure incurred on tangible fixed asset investments and enables companies and individuals to offset these costs against the taxable profits of the trade, reducing the amount of corporation or personal tax payable. The allowances are usually offset against taxable profits over several years, depending upon the type of allowances claimed.
The most common ways of claiming Capital Allowances are via Annual Investment Allowances (AIA), Main & Special Rate Writing Down Allowances and other allowances designed to encourage investment in certain sectors and locations.
Here we look at the key points from the latest statistics released by HMRC;
- Capital Allowances for 2018-19 were almost £99 billion, representing a 3% increase.
- The Manufacturing sector claims the greatest amount of Capital Allowances overall, accounting for 12%, or £12.2 billion, of the total amount claimed.
- The Construction and Agriculture, Forestry and Fishing sectors claim the most AIA as a proportion of their total Capital Allowance claims, possibly reflecting the large number of smaller companies operating in this sector.
Over the last 6 years, Capital Allowance claims have increased by around a quarter from £80.3 billion in 2013-14, despite a £2.9 billion decrease in 2016-17.
AIA claims increased by 12% (up from £13.3 billion in 2017-18 to £14.8 billion in 2018-19) with the threshold increase from £200,000 to £1 million (effective Jan 1st 2019) seen as a likely factor as AIA claims generally increase or decrease in line with the AIA threshold. Indeed, the 20% decrease in AIA claims in 2016-17 coincided with a significant reduction in the AIA threshold (from £500,000 to £200,000) in the same period.
- Wholesale and Retail Trade,Repairs
- Information andCommunication
- Financial andInsurance
- Admin and Support Services, Public admin, Defence and SocialServices
These statistics do not account for the impact of Covid-19, as the data reporting period preceded the full effects of the national lockdown.
The Government has reiterated their desire to offer businesses incentives for positive environmental investments, however this has not been supported with financial measures to encourage businesses to either make new investments or bring forward expenditure which may be on hold. In order to assist businesses further over the next few years, we suggest the Government maintains the £1m AIA rate which is set to revert back to £200,000 on 1st January 2021 and offer further national Grant funding to support new capital investments.